The beautiful thing about wealth management is the fact that it’s an iterative process. The lessons of the year before will serve as the bedrock for decisions this year, and so forth. So, what have we learnt in 2017? And what impact will any of it have on how the world manages its finances in 2018? Briefly, we will recount the six influential wealth management trends that are likely to hold sway this year.
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1) Increasing role of AI and machine learning
Refinement is in, human errors are out. In 2018, more and more wealth management firms are likely to employ artificial intelligence and other innovative techniques to hypercharge their operations. For a long time, wealth management has relied on human intervention to establish investment options, profitability and long-term parking of capital. By including AI and IoT, humans are taking a step back in favor of enhanced precision and accountability.
With everything from managing a portfolio of funds to critical analysis of financial instruments, establishing identities through social media data to improved categorization of contracts, wealth management companies are likely to turn to ‘thinking machines’ to make life a wee bit easier in 2018.
2) Primary USP: Accuracy of data in wealth management
In 2018, customization is the holy grail of profitable business. Wealth management firms will face an overwhelming demand for customization from their clients. Thus, they must be 100% confident about the accuracy and feasibility of their own data. Ensuring this will take care of repeat business, upselling and customer loyalties.
Unfortunately, a vast majority of wealth managers aren’t investing in ensuring the veracity of their data before meaningful insights are drawn from them. In 2018, any wealth management company intent on making a profit will have to abandon this approach. Accuracy of data and the assurance of success through insights drawn from said data will ensure survival and growth in an increasingly competitive industry.
3) Cost optimization to offset automation overheads
For most wealth management companies in 2018, cost optimization will be their Achilles heel. As firms turn to automation and digitalization to attract a newer segment of customers, the incurred expenses must be sufficiently offset to ensure profitability. Wealth management firms must decide which processes to automate first, and what type of tasks must be performed by humans.
Another cost optimization solution that will find almost universal adoption is outsourcing. As repetitive backend jobs are handled by an away team or the in-house AI, core workers can pick up higher value tasks and drive greater profits for the company. However, in light of automation and digitalization, the justification for cashing in fat paychecks will be hard to find. This will ensure that 2017’s trend of fee compression will continue well into 2018.
4) Disruption in assessment and earning the investor’s confidence
One of 2018’s most significant upgrades in wealth management practices will pertain to the initial risk assessment. Instead of the formal, dry, limited and purely text-based risk tolerance questionnaire, wealth management firms will most likely employ an image based, detailed and emotion-heavy assessment. This measure is intended to help the wealth manager understand the investor’s mindset in less-than-ideal conditions (say, volatile markets). Information such as this isn’t freely available with current procedures.
A highly targeted icebreaker will also help the wealth manager understand the investor’s compatibility with systems that are mostly AI-driven. All the personnel representing the wealth management firm must be proficient with the AI’s role, and expertly explain these workings to the concerned investor or the regulator. Herein lies 2018’s next big development in the wealth management market: reskilling of employees in light of AI’s growing prominence in this dynamic ecosystem.
5) Cryptocurrencies finally earn the wealth manager’s attention
Undivided attention at that! After largely ignoring Bitcoin’s phenomenal rise in 2017 and the number of crypto-millionaires it spawned, wealth management firms will have their eyes peeled for cryptocurrency success stories in 2018. Herein, liquidity will still be a major concern. However, wealth managers cannot afford to ignore a lucrative demographic that is mostly made up of millennials.
The soaring demand for cryptocurrencies and the volatility involved may force wealth management platforms to expedite, outsource and work together. However, considering that AI and digitalization will be key in 2018, accommodating cryptocurrencies shouldn’t be a big problem.
